COINSURANCE AGREEMENT
This is a COINSURANCE AGREEMENT entered into on December 30, 1998, between
PIONEER LIFE INSURANCE COMPANY, a corporation organized under the laws of the
State of Illinois, (hereinafter referred to as the "Reinsurer"), and UNIVERSAL
FIDELITY LIFE INSURANCE COMPANY, a corporation organized under the laws of
Oklahoma (hereinafter referred to as the "Company").
W I T N E S S E T H:
ARTICLE I
It is hereby agreed that effective as of the close of business on the
month end immediately preceding the closing date under the Stock Purchase
Agreement between Pre-Paid Legal Services, Inc. and Pioneer Financial Services,
Inc. dated October 5, 1998 (the Closing Date), the Company does hereby cede, and
the Reinsurer does hereby assume by coinsurance, 100% of the Company's liability
for the insurance policies described in Exhibit A.
ARTICLE II
Accounting
The Reinsurer agrees to provide the Company with interim accounting
reports within 20 days after the end of each three month period or other
mutually agreed upon interval, but not less than quarterly, setting forth the
collected premium income, policy benefits, and expenses for agency compensation
paid, any statistical information pertaining to the policies which may be
necessary to fulfill statutory or regulatory requirements, and all other
necessary information on the business coinsured hereunder, to be determined in
accordance with the practices required to conform to the methods prescribed by
the National Association of Insurance Commissioners (NAIC) for the completion of
the Convention Form Annual and Quarterly Statement Blank; provided, that while
the Administrative Services Agreement dated as of December 30, 1998 between the
Company and Pioneer Financial Services, Inc. (the "Administrative Services
Agreement") shall be in effect, the Company shall provide all reports referred
to in this Article II to Reinsurer.
ARTICLE III
Reporting and Payment
to the Company
With respect to each reinsured policy, the Reinsurer shall collect all
premiums due under said policies and retain said premiums; provided, that while
the Administrative Services Agreement shall be in effect such premiums shall be
collected by the Company on behalf of Reinsurer and immediately remitted to
Reinsurer. These amounts shall be the full amount of the reinsurance premium due
to the Reinsurer hereunder with respect to such policies.
As a result of the ceding and acceptance of reinsurance, the Reinsurer
also assumes and agrees to reimburse the Company for all of the following with
respect to the reinsured policies:
(a) Any guaranty fund assessments attributable to premiums written
on the reinsured policies except where such is eligible as a
credit against premium or state income taxes or is attributed
to being licensed to conduct business in a state (class A);
and
(b) Premium taxes relating to premiums written by the Company
under the reinsured policies.
At the end of each calendar quarter, the Reinsurer will determine the
cumulative gain or loss on the business reinsured for the period commencing on
the Closing Date of this Agreement and ending on the last day of such calendar
quarter in accordance with Exhibit C. Within 30 days following the end of each
calendar quarter, the Reinsurer shall pay to the Company an amount equal to 10%
of any cumulative gain, minus all amounts previously paid to the Company
pursuant to this paragraph.
ARTICLE IV
Transfer of Assets
and
Any Remittances Due Hereunder
The Company will transfer assets on the Closing Date (which must be
marketable securities or cash equivalents) to the Reinsurer having a fair market
value on the Closing Date equal to 100% of the reserves and other policy
liabilities as of the Closing Date on the business coinsured hereunder. It is
understood that these assets are transferred to the Reinsurer for the purpose of
funding and maintaining the reserves and other policy liabilities on the
coinsurance hereunder. These assets shall include the applicable deferred and
uncollected net premiums and securities for the remainder of the assets required
to fund the reserves and other policy liabilities.
Prior to the date of such transfers, the Company will hold sufficient
funds for the benefit of the Reinsurer to cover the amount to be transferred.
Reserves and other Policy liabilities and assets to be transferred are
shown in Exhibit B.
ARTICLE V
Assignment
The Company hereby assigns to the Reinsurer its rights, title and
interest in the following:
(a) Gross premiums, premium adjustments and any other
consideration due or to become due to the Company from
insureds and reinsurers on reinsured policies.
(b) Reinsurance recoverables relating to or arising under any
certificate, agreement or treaty of reinsurance and ceding
commissions or other consideration due or to become due to the
Company under reinsured policies.
ARTICLE VI
Premium Rates;
Cooperation
The Reinsurer shall determine the premium rates for the policies
reinsured hereunder and the Company authorizes the Reinsurer to seek approval
from the applicable Insurance Departments or other regulatory body as required
by law of any rate changes the Reinsurer feels are necessary to maintain the
rates at an adequate level.
The Company shall cooperate, as reasonably necessary, in assisting the
Reinsurer in obtaining any regulatory approvals, acquiescences or consents
required to properly administer the business or establish appropriate and
adequate rates. Such cooperation shall include, but not be limited to, review of
and comment upon proposed rate filings, attendance at meetings with regulators
and testimony at insurance department hearings which involve issues related to
the business reinsured.
ARTICLE VII
Insolvency
In the event of insolvency of the Company, the reinsurance shall be
payable directly to the liquidator, receiver or statutory successor of the
Company, on the basis of claims allowed against the insolvent Company by any
court of competent jurisdiction or by any conservator, liquidator, or statutory
successor of the Company having authority to allow such claims, without
diminution because of the insolvency of the Company or because the conservator,
liquidator or statutory successor has failed to pay all of a portion of any
claims.
It is further agreed that the liquidator, or receiver, or statutory
successor of the Company shall give written notice to the Reinsurer of the
pendency of any claim against the Company on the policies reinsured within a
reasonable time after such claim is filed in the insolvency proceeding, and that
during the pendency of such claim the Reinsurer may investigate such claim and
interpose, at its expense, in the proceeding in which such claim is to be
adjudicated, any defense or defenses which it may deem available to the Company
or to its liquidator, or receiver, or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.
ARTICLE VIII
Parties to the Agreement
This is a Coinsurance Agreement for indemnity coinsurance solely
between the Company and the Reinsurer, their successors or assigns. Subject to
the provisions of ARTICLE VII above, the coinsurance hereunder shall not create
any right or relationship between the Reinsurer and any person or entity,
including but not limited to the insured, owner, or beneficiary of any policy of
the Company which may be coinsured hereunder.
ARTICLE IX
Errors and Omissions
It is expressly understood and agreed that if failure to comply with
any condition of this Coinsurance Agreement is shown to be unintentional and as
a result of a misunderstanding, oversight, or clerical error on the part of
either the Company or the Reinsurer, both the Company and the Reinsurer shall be
restored to the position they would have occupied had no such error or oversight
occurred.
ARTICLE X
Other Reinsurance
The Company agrees it will not sell, reinsure or otherwise attempt to
dispose of the business coinsured under this Coinsurance Agreement without the
express written consent of the Reinsurer.
ARTICLE XI
Liability for Claims and Policy Benefits
The Reinsurer shall be liable to the Company for the benefits coinsured
hereunder to the same extent as the Company is liable to the insured for such
benefits, and all coinsurance shall be subject to the terms and conditions of
the policy under which the Company shall be liable.
The Reinsurer shall be liable for any punitive damages or any other
extra-contractual amounts on coinsurance hereunder which are incurred by the
Company unless said damages or extra-contractual amounts are a consequence of
the Company's action following the Closing Date of this Agreement.
ARTICLE XII
Commencement of Liability
Except as provided in Article XI, the liability of the Reinsurer shall
follow the Company in every case and shall be subject in all respects to all the
general and specific stipulations, clauses, waivers, extensions, modifications,
and endorsements of the Company's policies subject to all other terms and
conditions of this Agreement.
ARTICLE XIII
Termination of this Agreement
This Agreement shall remain in effect for as long as any policies
reinsured hereunder shall remain outstanding and in effect. However, either
party may terminate this Agreement as to new business at any time upon 90 days
advance, written notice.
ARTICLE XIV
Security
As long as this Agreement is in effect, the Reinsurer shall provide the
Company with security (by trust account, letter of credit or other) sufficient
to allow the Company to claim reinsurance credits equal to the total reserves
and claim liabilities ceded under this Agreement. Such security, if necessary,
must be satisfactory to the Company and acceptable to the state of domicile of
the Company.
ARTICLE XV
Entire Agreement
This Agreement represents the entire Agreement between the Company and
the Reinsurer and supersedes any prior oral or written agreements between the
parties regarding its subject matter.
No modification of this Agreement shall be effective unless set forth
in a written amendment executed by both parties.
ARTICLE XVI
Offset
Any debts or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, in favor of or against either
the Company or the Reinsurer with respect to this Agreement or any other
reinsurance agreement between the parties, shall be offset and only the balance
allowed or paid. If either party is then under formal insolvency proceedings,
this right of offset shall be subject to the laws of the state exercising
primary jurisdiction over such proceedings.
ARTICLE XVII
Deferred Cost Tax Election
The Reinsurer and the Company each acknowledges that it is subject to
taxation under Subchapter "L" of the Internal Revenue Code of 1986 (the "Code").
With respect to this Agreement, the Reinsurer and the Company agree to
the following pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations
issued in December of 1992, whereby:
(1) Each party agrees to attach a schedule to its federal income
tax return which identifies this Agreement for which the joint
election under the regulation has been made;
(2) The party with net positive consideration, as defined in the
regulation promulgated under Code Section 848, for this
Agreement for each taxable year, agrees to capitalize specific
policy acquisition expenses with respect to this Agreement
without regard to the general deductions limitation of Section
848(c)(1);
(3) Each party agrees to exchange information pertaining to the
amount of net consideration under this Agreement each year to
ensure consistency; and
(4) This election shall be effective for the year that this
Agreement was entered into and for all subsequent years that
this Agreement remains in effect.
ARTICLE XVIII
Complaints, Litigation and Official Notices
(a) Both parties shall promptly notify the other of any complaint
from any insurance department of which it becomes aware in
connection with any transaction under this Agreement.
(b) Both parties shall promptly notify the other of any litigation
of which it becomes aware in connection with any transaction
covered by this Agreement.
(c) Each party shall cooperate fully and assist the other in the
defense of any lawsuit or administrative action brought
against it by any third party in connection with any
transaction subject to this Agreement.
(d) Each party shall promptly notify the other of and immediately
refer any and all official notices dealing with such matters
as bankruptcies and levies along with any pertinent
information providing such matters arise from or relate to
transactions under this Agreement.
(e) Each party shall promptly notify the other of any subpoena or
subpoena duces tecum directed to it in connection with any
transaction covered by this Agreement.
(f) Unless expressly authorized in this Agreement, or otherwise
specifically authorized in writing, neither party shall have
authority to bind the other by any statement, promise or
representation.
(g) The parties shall have no authority to admit liability on the
part of the other in any matter arising out of or subject to
the terms of this Agreement, unless specifically authorized in
writing.
(h) Neither party shall have authority to institute any action or
legal proceeding on behalf of the other party, unless
authorized in writing by the other.
(i) Reinsurer shall have the sole responsibility for management of
litigation resulting from this Agreement and shall retain
counsel, reasonably acceptable to Company. However, Company
may, at its own expense, retain its own counsel in the defense
of any litigation.
ARTICLE XIX
Assurances
The Company and the Reinsurer agree to refrain, and to cause their
employees, agents and affiliates (as identified in the organizational charts of
the annual statements of the Company and Reinsurer as filed in their respective
states of domicile) and their affiliates' employees and agents to refrain from
utilizing information regarding the business reinsured hereunder for the
purposes of causing or attempting to cause any contract holder to replace any
contract reinsured hereunder with any contract or policy of insurance of the
Company or any affiliate of the Company, the Reinsurer or any affiliate of the
Reinsurer or any other company, other than in the ordinary course of business
and consistent with the past practices of the Company or Reinsurer. The Company
and Reinsurer agree to use all reasonable efforts to conserve, maintain and
assure the persistency of the business reinsured and agree to refrain from
taking any action which might tend to have a materially adverse effect on the
persistency of the business reinsured hereunder, other than the ordinary course
of business consistent with past practice, without the prior written consent of
the other party. The Company agrees not to engage in any internal replacement
program targeted towards the contracts reinsured hereunder. The Company agrees
not to solicit, and not to facilitate the solicitation of, any contractholder of
any contract reinsured hereunder for the sale of additional insurance.
ARTICLE XX
Notices
All notices which are required to be in writing shall be deemed to have
been given at the time mailed in the general or branch United States Post Office
enclosed in a certified prepaid envelope addressed to the respective parties at
the address indicated below or at such other addresses as may be required in
writing by any party as to its own address:
If to Reinsurer: Pioneer Life Insurance Company
00000 X. Xxxxxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
If to Company: Universal Fidelity Life Insurance Company
00000 X. Xxxxxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Provided, however, that any notice of change of address will be
effective only upon receipt.
ARTICLE XXI
Arbitration
(a) All claims, disputes and other matters in question between
Company and Reinsurer arising out of or relating to the
Agreement or the breach thereof, whether arising before or
after the termination of this Agreement, shall be decided by
arbitration with a panel of three (3) arbitrators in
accordance with the Rules of the American Arbitration
Association then obtaining, unless the parties mutually agree
otherwise. Each party to this Agreement shall select an
arbitrator, and the two arbitrators thus selected shall select
a third arbitrator. Such arbitrators must have expertise in
the field of life and/or health insurance. In the event that
any party, or the two arbitrators, fail to select an
arbitrator, selection of that arbitrator shall be made by the
American Arbitration Association. The arbitrators shall reach
their decision within forty five (45) days following the close
of the arbitration hearing.
(b) No arbitration shall include by consolidation, joinder or in
any other manner, parties other than Company and Reinsurer,
and any other persons substantially involved in a common
question of fact or law, whose presence is required if
complete relief is to be accorded in the arbitration. No
person other than Company or Reinsurer shall be included as an
original third party or additional third party to an
arbitration whose interest or responsibility is insubstantial.
In no event shall any insured who claims benefits be subject
to such arbitration unless he/she consents in writing.
(c) The foregoing agreement to arbitrate and any other agreement
to arbitrate with an additional person or persons duly
consented to by the parties to this Agreement shall be
specifically enforceable under the prevailing arbitration law.
The award rendered by the arbitrators shall be final and
judgment may be entered upon it in accordance with applicable
law in any court having jurisdiction thereof.
(d) Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with the American
Arbitration Association. The demand for arbitration shall be
made within a reasonable time after the claim, dispute or
other matter in question has arisen, and in no event shall it
be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statute of
limitation in the State of Oklahoma. All arbitration
proceedings shall be held in Oklahoma City, Oklahoma.
(e) In addition, the obligations of the parties undertaken
pursuant to Article XVIII Complaints, Litigation and Official
Notices shall be performed by the parties during the pendency
of any arbitration proceeding under this Paragraph.
IN WITNESS WHEREOF, the parties hereto have caused this Coinsurance
Agreement to be executed and signed by their respective duly authorized officers
to become effective as provided in this Coinsurance Agreement.
PIONEER LIFE INSURANCE COMPANY
By: /s/ XXXXXX X. XXXXXX
-----------------------------
Xxxxxx X. Xxxxxx, President
Name Title
Date: December 30, 1998
Attest
/s/ XXXX X. XXXX
------------------------------
Xxxx X. Xxxx, Secretary
Name Title
UNIVERSAL FIDELITY LIFE INSURANCE COMPANY
By: /s/ XXXXX XXXX
-----------------------------
Xxxxx Xxxx, CFO & COO
Name Title
Date: December 30, 1998
Attest
/s/ XXXXXXXX X. XXXXXX
----------------------------------
Xxxxxxxx X. Xxxxxx, VP/Controller
Name Title
EXHIBIT A
All health business including Medicare supplement, long term and home
health care business.
EXHIBIT B
STATUTORY ITEMS TO BE TRANSFERRED
AS OF December 30, 1998.
Asset Items:
1. Deferred and Uncollected New Premiums: $ 271,161
2. Remaining assets to be Transferred
Securities having a market value at
December 28, 1998 12,610,703
3. Cash 78,550
------------
$ 12,960,414
------------
Liability and Surplus Items:
1. Aggregate Reserves for accident and health: $ 7,735,414
2. Policy and contract claims: accident & health 5,225,000
3. Premiums received in advance: 0
4. Liability for premium and other deposit funds: 0
5. Policy and contract liabilities not included
elsewhere: 0
------------
$ 12,960,414
------------
EXHIBIT C
Gain/Loss Formula
The formula for determining the cumulative gains/losses for any period
during the term of the Agreement is as follows:
(1) Net Gross Earned Premiums; plus
(2) Investment income; minus
(3) Incurred Claims; minus
(4) Commissions Incurred; minus
(5) Assumed Expense Allowance; minus
(6) Reinsurer's Income Tax Allowance
The above items shall be determined in each case for such period by
Reinsurer in accordance with the definitions below and items (1) through (4)
shall be determined in manner consistent with Reinsurer's statutory financial
reporting for the business reinsured.
Definitions
"Net Gross Earned Premiums" shall mean an amount equal to the unearned
gross premium reserve and advance premiums as of the beginning of the quarterly
computational period, plus collected premiums, less any refunded premiums, less
the unearned gross premium reserve and advance premiums as of the end of the
quarterly computational period on business reinsured.
"Investment Income" shall mean an amount calculated on a per quarterly
computational period basis and shall equal the interest rate multiplied by the
sum of the average claim and active life reserves on business reinsured for the
quarterly computation period. The interest rate shall equal the average of the
one-year Treasury constant maturities rate as of the last day of each month in
the quarterly computation period as published in the Federal Reserve Statistical
Releases. The average claim reserve on business reinsured for the quarterly
computational period shall equal the average of the claim reserve on business
reinsured at the beginning of the computational period and the claim reserve at
the end of the computational period. The average active life reserve on business
reinsured for the quarterly computational period shall equal the average of the
active life reserve at the beginning of the computational period and the active
life reserve at the end of the computational period.
"Incurred Claims" shall mean the amount equal to claims paid during the
quarterly computational period, plus the claim reserve at the end of the
computational period, plus the active life reserve at the end of the
computational period, minus the claim reserve at the beginning of the
computational period, minus the active live reserve at the beginning of the
computational period on business reinsured.
"Commissions Incurred" shall be the amount of commissions, first year
and renewal, incurred on the business reinsured by Reinsurer during the
quarterly computational period. Commissions Incurred shall include all
commissions earned by agents which are used to repay any debit balance and
commissions paid directly to agents.
"Assumed Expense Allowance" shall mean an amount equal to 10% of Net
Gross Earned Premiums and is the amount allotted to Reinsurer to administer the
reinsured policies and pay any premium taxes, assessments, fines, penalties and
examination and regulatory fees related to such reinsured policies.
"Reinsurer's Income Tax Allowance" shall mean an amount equal to 35% of
profits before income taxes on business reinsured. Profits before income taxes
shall equal Net Gross Earned Premiums, plus Investment Income, minus Incurred
Claims, minus Commissions Incurred, minus Assumed Expense Allowance.
